A glimmer of hope started to be felt in Asian base oil markets as manufacturing activities have started to ramp up in China, given a slowdown in the number of coronavirus infections in the country where the disease originated.
With the number of coronavirus cases appearing to diminish, more workers were able to return to work, while the country, which has been almost paralyzed due to the government imposition of self-quarantine measures, was starting to see a small pick-up in general activity.
This would also likely lead to increased use of means of transportation, which in turn could result in a moderate improvement of fuel and lubricants demand.
However, it may take quite some time before the positive signs become more evident, sources said, as China is still not out of the woods in terms of the epidemic yet. Observers questioned whether the number of cases had indeed gone down, or whether the way the government was counting and reporting infections had changed.
While the situation in China may be slowly improving, uncertainties were swelling in other markets, where the spread of the virus was gaining speed. People were staying away from businesses, large gatherings and public places in South Korea, Japan, Singapore, India and Italy, while alarm was also heightened in the United States, limiting manufacturing activity and consumer spending.
Automotive plants in many countries have halted or reduced production, dampening demand for finished lubricants. Airlines have also restricted the number of routes they are currently covering and the number of passengers has fallen, resulting in significantly reduced demand for jet fuel and aviation lubricants.
It was heard that several Chinese base oil plant operators were preparing to increase operating rates this month, following a cutback in production due to the coronavirus crisis.
Several of Sinopec‘s subsidiaries were anticipated to either raise operating rates, or restart production, following the temporary suspension of output. Sinopec’s Group I/II plant in Gaoqiao was heard to be among those plants increasing operating rates was. At the same time, a number of other plants were expected to continue running at reduced rates.
A couple of base oil units in China were also slated to start a turnaround in the next few weeks, including CNOOC Taizhou’s Group II and naphthenic base oils plant which will commence a one-month shutdown in mid-March.
Although most Asian producer stocks were heard to be high, participants reported a surprising dearth of certain grades.
According to sources, there was more than ample supply of light viscosity Group II grades, but there was a shortage of heavy Group II cuts. “Group II 600N cannot be had for love nor money,” a source noted. Other participants were unable to explain this phenomenon, although one source noted that a South Korean Group II plant has been shut down since the third quarter of last year, while the same producer’s Group III unit was running at close to full rates. A large Singapore Group II producer was also heard to have dialed back output, but this could not be confirmed.
In India, Group II and III availability was plentiful, but Group I was also heard to be slightly tighter than other grades due to the lack of imports from Iran, and the limited availability of spot cargoes from other Middle East sources given that demand in the Gulf region seemed to be strong. However, a couple of large Middle East Group I/II cargoes were heard to be loading this month for discharge at Indian ports.
Group III continued to show evidence of oversupply in Asia and producers were heard to be looking for opportunities in Europe and the Middle East, which were also well-supplied at the moment. This was exerting downward pressure on pricing in most regions, sources commented.
There appeared to be no impact from the turnaround at the Group II/III plant in Ruwais, United Arab Emirates, because the producer has built inventories to cover requirements during the outage. The shutdown also coincides with a period of significantly decreased demand from China, one of the countries that regularly receives product from that plant.
Base oil spot prices in Asia were generally steady-to-soft as suppliers tried to hold on to margins, but conditions continued to place downward pressure on indications. Some of the ranges have been notionally adjusted down to reflect the lower discussion levels.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade was assessed at $650/t-$670/t, and the SN500 was at $700/t-$720/t, both ranges showing a $10/t downward adjustment. Bright stock was also down by $10/t at $810/t-$830/t, all ex-tank Singapore.
The Group II 150 neutral and 500N edged down by $10/t at $710/t-$730/t and $720/t-$740/t, respectively, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was adjusted down by $10/t at the high end of the range to $530/t-$550/t, and the SN500 grade was steady at $540/t-$550/t. Bright stock was hovering at $690/t-$710/t, FOB Asia.
Group II 150N was assessed down by $10/t at $550/t-$570/t FOB Asia, while the 500N and 600N cuts were holding at $580/t-$600/t, FOB Asia.
In the Group III segment, the 4 centiStoke was revised down by $10/t to $750-$780/t and the 6cSt was down by $10-15/t at $760/t-$790/t. The 8 cSt grade was unchanged at $710-730/t, FOB Asia for fully approved product.
Upstream, crude oil futures ticked up ahead of an OPEC+ meeting in Vienna, Austria, where its members and allies were expected to discuss deeper supply cuts in view of weaker oil demand caused by the impact of the Covid-19 outbreak. Prices also received a boost from a lower-than-expected rise in crude oil inventories in the United States.
On Thursday, March 5, Brent May futures were trading at $51.51 per barrel on the London-based ICE Futures Europe exchange, compared to $51.88/bbl for April futures on Feb. 27.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.
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